Silver ETFs liquidate 157 tonnes in May

Precious metals once again attempted to recover as the daily New York trading action got underway on Wednesday. Albeit the US dollar showed little in the way of gains (rising 0.16 on the trade-weighted index to 75.40) it also showed no tendencies to ease much below its recent multi-week highs for the time being. Crude oil led the charge this morning, rising more than $1.20 per barrel and the enthusiasm for black gold spilled over into the silver pits where a 1.68% gain was seen in the early part of the trading morning in New York.

The largest and rather singular (okay, lead lost 0.08% to be fair) damage this morning was inflicted upon rhodium, which fell an additional $70 to touch the $1,930.00 level. A harvest of Japanese statistical data which is due on Thursday might inflict further potential damage to the platinum-group metals. Clearly, the March Sendai quake is very likely to have affected Japan’s GDP as well as its industrial output.

The auto sector is a highly visible and significant component of that country’s economic wheels and gears. Bear in mind that Japan is normally the taker of roughly a fifth of total global platinum demand, just for example. Thus, it remains to be seen what tomorrow’s numbers might bring but they do bear watching closely.

Spot gold traded near the $1,493.00 level on the bid-side, rising 0.34% as players tried to right the golden vessel and push back towards the psychological $1,500 mark once again. Highs overnight in gold came in near the $1,498.00 level. Participants will be on the lookout for the release of the FOMC’s minutes later in the day and are sure to parse the same for any clues to near-term and medium-term Fed monetary policy plans that could be found therein.

Fed minutes-based clues or no clues, the shrinkage of gold and silver ETF holding balances continues this month. While we noted quite sizeable Q1 “exits” from gold by Messrs. Soros, Mindich, and Touradji in yesterday’s article, the post- May Day metals liquidations have amounted to about another 35 tonnes from gold and 157 tonnes from silver ETF balances.

Perceptions that (on the technical side) gold may have put in a medium-term top in the upper $1,570s before the month got underway probably contributed to the exodus from the ETP niche. However, it did not help matters that gold was largely unresponsive to a plethora of Euro-debt-related and other formerly-thought-to-be-bullish news on the geopolitical and economic fronts.

Market analysts at StandardBank (SA) do not see the Fed as beginning to tighten just yet, however, they are mindful of the possible presence of suggestions that the Fed might begin to reduce the size of its swollen balance sheet. Such actions, says the SB analysis, “will be bearish for commodities in general, but gold specifically.” SB finds that “gold has by far the greatest causality with liquidity, followed by crude, and then base metals in general.”

CPM Group NY issued its own note of caution on Tuesday, concluding that precious metals prices are “highly vulnerable” to another spike to lower levels in coming market session. They see gold possibly touching $1,450 or $1,425 and silver reaching towards $28, $26 or even $24 per ounce. Moody’s Investor Services, addressing silver, [correctly] opines that what drove the white metal past $50 the ounce was “investment activity” [we translate that as: pure speculation] and not its internal supply/demand dynamics of balances.

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